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Charitable Giving

10/23/2018

“Life insurance can be tricky to figure out, with all its technicalities and rules.”

Investopedia’s recent article entitled “Top 10 Life Insurance Myths” looks at the top 10 misconceptions about life insurance. Hopefully, this information will answer some questions, dispel some incorrect notions and make the process of getting coverage a little easily.

“I'm single with no dependents, so I don't need coverage.” Well, even single people need at least enough life insurance to cover the costs of personal debts, medical expenses and funeral bills. If you’re uninsured, you may leave a rash of unpaid expenses for your family or executor to deal with. It can also be a terrific way for low-income singles to leave a legacy to a favorite charity.

“My coverage just needs to be twice my annual salary.” The amount of life insurance you need is based on your specific situation, due to the myriad factors to consider. You may need to pay off debts, like a mortgage, and provide for your family for several years.

“I have term life insurance coverage at work, so I’m good.” That depends. If you’re single with modest means, your employer-paid or -provided term coverage may do it. However, if you have a spouse and/or children or you’re confident you’ll need coverage when you pass away to pay estate taxes, more coverage may be required.

“I heard that the cost of my premiums is deductible.” In most cases, that is not true. The cost of personal life insurance is never deductible, unless the policyholder is self-employed, and the coverage is used as asset protection for the business owner. In that case, the premiums are deductible on Schedule C of Form 1040.

“I gotta have life insurance at any cost.” That’s probably accurate for most of us. However, those who have sizable assets and no debt or dependents may be better off self-insuring. If you have your medical and funeral costs covered, life insurance coverage may be optional.

“I should buy term and invest the difference.” Not necessarily. There are some distinct differences between term life and permanent life insurance—and the cost of term life coverage can become prohibitively high in later years. Therefore, if you know for certain that you have to be covered at death, look at permanent coverage. The total premium cost for a more expensive permanent policy may be less than the ongoing premiums that could last for years longer with a less expensive term policy. There’s also the risk of non-insurability. That could be disastrous for those who may have estate tax issues and need life insurance to pay them. This can be avoided with permanent coverage, because this policy becomes paid up after a certain amount of premium has been paid and remains in force until death.

“Variable universal life policies are always better than straight universal life policies over the long haul.” Many universal policies pay competitive interest rates, and variable universal life (VUL) policies have several layers of fees for both the insurance and securities parts of the policy. Therefore, if the variable sub-accounts within the policy don’t perform well, a variable policyholder may realize a lower cash value than a person with a straight universal life policy. Poor market performance can generate substantial cash calls inside variable policies that mean additional premiums must be paid to keep the policy in effect.

“It’s just the primary breadwinners who need life insurance coverage.” Not so. Think of the cost of replacing the services that have been provided by a deceased homemaker. They’re higher than you think. Insuring against the loss of a homemaker may make sense, especially when it comes to the expenses of cleaning and daycare.

“I always should buy the Return-of-Premium (ROP) rider on any term policy.” Well, there are typically various levels of return-of-premium (ROP) riders available for policies that offer this. Many financial experts say that it’s not cost-effective and should be avoided. The decision will depend on your risk tolerance and other possible investment objectives. A cash flow analysis will tell, if you might come out ahead by investing the additional amount of the rider elsewhere, instead of including it in the policy.

“I'm better off investing my money than buying any kind of life insurance.” Until you reach the breakeven point of asset accumulation, you need life insurance coverage of some sort (except for those who can self-insure). When you have $1 million of liquid assets, you can think about discontinuing or decreasing your million-dollar policy. However, you take a big risk when you depend solely on your investments in the early years of your life, particularly if you have dependents. If you die without coverage for them, there may be no other way to provide for them after the depletion of your current assets.

This hopefully clears up some of the common misunderstandings about life insurance. Don’t leave life insurance out of your budget, unless you have enough assets to cover your expenses after you're gone.

05/30/2018

“Charitable planning can provide financial benefits, in addition to the satisfaction in helping others…”

Investopedia provides us with some things to evaluate, when considering charitable giving in the article “A Primer on Philanthropic Vehicles.” There are many strategies and techniques that can be incorporated into an estate plan, but many people prefer to focus on how they can contribute during their lifetime.

Cash is the most basic donation and is one most people know about. That’s as simple as writing a check to the charity or other tax-qualified organization of your choosing.

Gifts of appreciated securities, like shares of individual stocks, mutual funds, ETFs, or closed-end funds, can be made to qualified organizations. After contacting the organization directly to confirm they can accept such gifts, transfer the shares from your account to the brokerage account of the organization. You get the tax benefit of the charitable contribution, based on the market value of the shares at the time the contribution is made, and you won’t be subject to the capital gains that would incur, if the security was sold outright. This can be a large amount for securities that have been held for some years, with an extremely low-cost basis.

You can also choose to gift non-securitized assets. With real estate, stock in a privately held business, art, or collectibles, the value of the asset at the time of the gift is deductible, like publicly traded securities. Similar to publicly traded securities, you also won’t be subject to capital gains tax due on the amount of unrealized appreciation of these assets. However, the charity needs to be able to take these types of assets as gifts. Contact the organization and make sure that this is the case. You’ll usually need to have a third party conduct an appraisal of the asset to be donated, to determine its value.

Giving directly to the charity is one of the most common forms of giving.

Donor advised funds are philanthropic funds created as public charities. Many major custodians offer a version of these funds that take donor gifts and invest the money on the donor’s behalf.

Depending upon the fund, donors can select from investment options offered by the fund or have the money invested in a way suggested by an advisor.

04/17/2018

“Ingvar Kamprad was one of the richest men on the planet. But his heirs will only get a fraction of his billions.”

IKEA founder Ingvar Kamprad died late last month at age 91. He was one of the richest people on earth, thanks to the great success of his retail furniture empire. The notoriously frugal entrepreneur was ranked number eight on the Bloomberg Billionaires Index. His fortune was estimated to be about $73.8 billion.

Most of the IKEA furniture stores are owned by the Stichting Ingka Foundation. The Dutch entity’s objective is to donate to charity and “supporting innovation” in design. The company was started by Kamprad in the ‘80s and is outside his family’s control.

The company is controlled by Liechtenstein-based Interogo Foundation, and its subsidiary, Inter IKEA, is the global IKEA franchisor. In addition to philanthropy, the Foundation also allows for profits to be reinvested into the company. The foundation in effect owns itself. As such, Kamprad’s family can’t own any shares.

The reason for doing this was to ensure IKEA’s long-term survival. It’s now impossible for any individual person to take control of the company after Kamprad’s death — even a direct heir. Therefore, Kamprad’s family won’t have control over the IKEA company. But they will get modest sums from Ikano Group, a company that is worth billions of dollars in its own right.

That company is owned by the family and runs several businesses in the finance, real estate, manufacturing, and retail industries.

Per Heggenes, CEO of the IKEA Foundation said in 2012 that Kamprad was “not interested in money.”

03/16/2018

“A family dispute is playing out in Napa Superior Court between two daughters of Ed Keith, a Napa landlord, vintner and businessman, over what happened to their father’s $92 million estate, including $38 million earmarked for a foundation intended to benefit disadvantaged youth.”

In 2016, ten years after Ed Keith died, Lisa Keith filed suit to compel her sister, Celeste K. White, to provide a full accounting of millions of dollars that she controlled as co-trustee of the Ed’s estate. Ed Keith was a self-made businessman who owned 500 apartment units in Napa and many other holdings.

In “Wealthy Napa businessman's heirs seek answers about $92 million estate,” the Napa Valley Register reports that Lisa Keith questions the propriety of a variety of financial decisions made by Celeste White. This includes $15 million invested in a for-profit real estate company, the purchase of a $2.4 million condo in Santa Barbara, the acquisition of a Land Rover for a winery and the construction of a stable for their polo ponies.

Lisa Keith is one of Ed’s five children from two marriages. Her sister, Celeste, lives in Napa with her husband, Dr. Robert White, who was named the executor of Ed’s estate.

Lisa alleges that the Whites made questionable decisions regarding the money from their father’s estate and argues that an estimated $1.8 million in trustee fees paid to Celeste should be refunded to the trust.

A Napa County Superior Court judge recently ruled that Lisa had no standing to ask for an accounting of foundation funds, because she’s not a director or beneficiary of the foundation. However, since she’s a beneficiary of the trust, she continues to ask for an accounting of Ed’s trust funds.

Upon Ed Keith’s death, a number of early distributions dictated by his trust were made, including $1 million to each of his five children, $2 million to his 12 grandchildren, and $10 million to a winery. This reduced the estate to $76 million. According to the trust, half of that – $38 million – was to be placed in the Edward A. Keith Foundation, which was created to provide financial and other assistance to disadvantaged youth or children “otherwise in need.”

The other $38 million was to be divided equally among Keith’s five children. After all the bills were paid, there was $9.2 million left to be split among the five siblings.

Lisa looked into what happened to her father’s foundation and found several facts that led her to become concerned. Celeste reportedly paid herself and her husband more than $300,000 annually from the foundation and $15 million from the foundation was invested in a for-profit real estate investment company managed by Celeste. Of that $15 million, $2.4 million was used to buy a condo in Santa Barbara. Lisa says the foundation was “shortchanged to support Celeste and her husband’s lifestyle,” according to court documents.

Lisa claims that after her father’s death, Celeste had Lisa and her other siblings removed as directors of the foundation, leaving just Celeste and her husband in charge. She also claims the foundation then dropped any requirement that it benefit disadvantaged youth or children in need. However, Celeste’s attorneys said Ed removed Lisa as a director of the Foundation before he died.

According to court documents, the Edward Keith Foundation distributed $38 million to charities. But Lisa believes that if her father was alive, he wouldn’t have chosen to support some of those charities.

If there is one thing the family can agree on, it’s this: Ed wouldn’t have wanted a battle over his estate.

02/09/2018

It’s not unusual for parents and in-laws to help a young couple buy a house. The parent can gift money to them, but must the young couple pay taxes on the money? The tax laws on gifts can be pretty confusing, says nj.com in an article, “Are taxes owed on gift from in-laws?”

The article first looks at income taxes and notes that that the recipients of gifts, especially large cash amounts, often wonder if they’ll owe income taxes on the gift. However, a gift isn’t income. Consequently, there’s no taxable income to the recipient.

Likewise, some donors ask if gifts to the children, grandchildren, or others are deductible. Same answer: no. Gifts to other people are never deductible. The question probably stems from the fact that a charitable donation (a gift) is often deductible. Nonetheless, donations are only deductible if you itemize your deductions.

Next, let’s look at the gift tax, which applies to lifetime transfers. The recipient of a lifetime gift won’t owe gift tax. It’s just the donor who’s subject to the gift tax. Even so, most folks never have to file a gift tax return because there are exceptions for gifts to a spouse and gifts under the annual exclusion amount. The annual gift exclusion is $15,000 in 2018. This covers most other routine gifts. Every taxpayer can gift up to the annual exclusion amount to an unlimited number of individual recipients with no gift tax consequences.

Therefore, a parent could gift a child $15,000 with no reporting requirements. If the child is married, the parent can make the same gift to the spouse.

If the parent plans to gift more than the annual exclusion amount, then he’ll need to file a gift tax return. Even so, it’s unlikely that he’ll pay any gift tax. A parent must claim any gift, in excess of the annual exclusion amount, as a reduction against his future estate tax exemption amount (currently $11,220,00 per person) as reported on a Form 709 Gift Tax Return. The estate tax is a transfer tax at death and amounts more than the exemption amount are subject to the tax. That noted, such taxable gifts are less of a concern now that the estate tax exemption amount is $11,220,000 per person in 2018.

Speak with an experienced attorney to review any gifting plans, before making any decisions.

01/15/2018

“Carl Bergstresser signed a will in which he stated that his 11.6-acre property on the Braden River should be forever maintained as a nature preserve.”

Right before he died of pancreatic cancer in July 2016, Carl Bergstresser signed a will in which he stated that his 11.6-acre property on the Braden (Florida) River should be forever maintained as a nature preserve.

The Sarasota Herald-Tribune reported in its recent article, “Outdoorsman’s siblings contest how trustees managed his estate,” that Bradley Magee, the attorney who drafted the will, said the Osprey-based Conservation Foundation of the Gulf Coast assumed ownership of the land. However, Bergstresser’s dying wish remains the subject of a prolonged legal battle. This question is further complicated by the uncertain outcome of an effort by Manatee County to acquire adjoining land from a developer to create an even larger nature preserve.

Bergstresser’s siblings, Diana and Phil Bergstresser, brought a probate court case that questions how the executors of their brother’s estate managed the assets which he left in addition to his homestead. They claim they’ve been deprived of most of the assets that would’ve remained in the estate, other than the donated land. Aside from his home and land, Carl’s estate is valued at $314,516.

Dated July 16, 2016, Bergstresser’s will states: “My homestead and all acreage owned adjacent to my homestead shall be donated or otherwise transferred to a nonprofit organization or government entity that will maintain such property for wildlife conservation and general conservation purposes on a perpetual or long-term basis.”

Bergstresser permitted his “personal representatives” named in his will—Magee, Phillip St. John, and Donald “Troy” Smith—to choose the nonprofit that would receive his property. The trustees paid a $32,000 mortgage and a $59,000 line of credit that Bergstresser owed from his remaining estate. The siblings say the will doesn’t state that Bergstresser wanted the debt paid out of the money that otherwise would have gone to his heirs and that his executors made the payments “without getting a court order.”

Their lawyer also claims the executors took $46,000 from the estate for their “personal representatives’ fees” and about $66,000 for attorney fees—an amount of attorney fees paid by the estate that they feel is “excessive.” He also said the court ordered the foundation to return $47,000 to the estate that the trustees paid it as a “stewardship fee” for costs from the closing on the property and putting it in a conservation easement.

Another unknown is an effort to get Manatee County to acquire 32.38 adjoining acres for which a developer received approval for a subdivision. When initially proposed, residents in the neighboring area strongly objected. They argued that the heavily wooded site on the Braden River is an oasis for an abundance of wildlife. They asked the county to acquire it for a nature preserve.

The developer granted the Conservation Foundation an option to buy that land for $3 million, and the foundation is willing to transfer that option to the County.

Bergstresser, whose property was directly west of the proposed suburb, joined the opposition movement. When he found out he was terminally ill, he decided his land should be part of that proposed nature preserve. Now that it has the Bergstresser land, the foundation is to classify it as a “conservation easement”, so it can’t be developed.

12/06/2017

“Simonetti was staunchly devoted to Chilton for at least 15 years–as a leader, volunteer and benefactor.”

The late Emil Simonetti was an extremely dedicated philanthropist in New Jersey, who supported Atlantic Health System’s Chilton Medical Center and his community for many years. Those who knew him say that he was generous, compassionate and a visionary.

Simonetti wanted to extend his charitable commitment well beyond his lifetime, through planned giving. After he died on August 1, 2015, much of the former Butler, New Jersey resident’s estate was donated to the causes and institutions he valued most. These included Chilton Medical Center, which received $1.2 million to benefit its Emergency Department. The hospital said that an area of the facility will be dedicated to Emil and his wife Carol.

Tap Into Montville’s recent article, “Former Butler Resident Bequeathed $1.2 Million to Chilton Medical Center,” reported that Emil Simonetti lived a life of service. Simonetti was born in Paterson, New Jersey, and served his country as a member of the U.S. Army during World War II. He also was a Councilman and Police Commissioner of Butler, as well as an advocate for Morris County residents with disabilities.

Simonetti also showed a strong interest in health care: he was involved with several health-centered organizations. He was appointed to two governing boards at Chilton Medical Center, where he contributed his financial expertise and participated on the hospital’s Senior Advisory Committee. In that capacity, he helped to develop programs for the community’s senior population.

“Emil held Chilton in high regard and had great confidence in what we do. He attended many of our fundraising events and was a member of Chilton’s Legacy Circle, expressing his desire to support the hospital through estate planning,” commented Mario R. Rosellini, Jr. of the Chilton Medical Center Foundation Board of Trustees.

Rosellini also mentioned that Simonetti talked about leaving a legacy and leaving something to Chilton. The medical center had no idea of the magnitude of his generosity until recently, when it learned of his $1.2 million bequest.

Simonetti’s gift is aimed at helping the hospital’s continuing efforts to equip Chilton’s emergency department with cutting edge imaging and diagnostic technologies, along with modernizing its facilities to optimize efficiency, capacity and the overall experience of patients and families.

11/15/2017

“You can't give your required minimum distribution from a 401(k) to charity without triggering a tax, but you can donate your 401(k) RMD tax-free, if you roll the money over to an IRA.”

Required Minimum Distributions (RMDs) are minimum amounts that a retirement plan account owner is required to withdraw each year, beginning in the year that he or she reaches 70½ years of age or—if later—the year in which he or she retires.

However, if the retirement plan account is an IRA or the account owner is a 5% owner of the business sponsoring the retirement plan, the RMDs have to start once the account holder is age 70 ½—even if she’s not retired.

What about when a plan owner dies? What are the rules for distributions to their beneficiaries? There are different RMD rules that apply. The entire amount of the owner’s benefit usually must be distributed to the beneficiary who is an individual either:

Within five years of the owner’s death; or

Over the life of the beneficiary, starting no later than one year following the owner’s death.

Roth IRAs don’t require withdrawals, until after the owner’s death. The tax-free transfer of an RMD to charity only applies to IRAs. However, there’s a way to give money from your 401(k) to charity tax-free: you need to roll over money from your 401(k) to an IRA and then donate it to the charity.

To do this, you’d have to take your RMD from the 401(k) for this year, before you can do the rollover. You can then roll over 401(k) dollars to the IRA for future charitable transfers. If you do this by the end of the year, you'll be able to begin moving some of the money to charity in 2018, which may fulfill some or all of the RMD from your IRA.

If you're 70½ or older, you can donate up to $100,000 from your IRA directly to charity. The contribution counts towards your RMD and isn't included in your adjusted gross income (AGI), so that may make you eligible for tax breaks linked to your AGI and reduce or eliminate taxes on Social Security benefits.

09/01/2017

“Donating IRA money directly to a charity can satisfy your required minimum distribution and lower taxes, but IRA administrators vary on how to deliver your gift.”

It’s a great idea to give your required minimum distribution (RMD) from an IRA to one or more charities. If you’re think of doing this, make sure that you understand the steps you need to take so you’re not taxed on the RMD.

Kiplinger’s recent article, “How to Ensure Your IRA Donation to Charity Is Tax-Free,” explains that folks older than 70½ can transfer up to $100,000 annually from their traditional IRAs to charity. This move can satisfy the RMD, but isn’t taxable, if they follow the rules for a qualified charitable distribution (QCD).

The gift is not a part of your adjusted gross income, if you make a direct transfer from your IRA to the charity. That means it will not count as a tax-free transfer if you withdraw the money first and then make the charitable donation. You should speak with your IRA administrator about the required steps. These procedures are different with different firms.

Some will have several options. For instance, if you have check-writing privileges on your IRA, you may be able to simply write a check directly from the IRA to the charity. You may also have the option to use the IRA’s QCD form and direct the money from your account. You should be timely in submitting the form or writing the check, so it is processed in the current year. November 30 is a good cut-off to give the IRA administrator sufficient time for processing.

If your IRA sends the money, the check will be written out to the charity and include your name. You should give the charity a head’s up that it should expect your donation. You’ll also want to give them your address, so the organization can send you a receipt for your tax records. Another way to go about this is to have the IRA administrator cut the check payable to the charity and mail it to your home address. You can then forward the donation to the charity yourself.

For example, Vanguard requires you to either complete a form or call them to request the transfer, so the donation will be counted as a QCD. Vanguard will make out the check to the charity and send it to you to forward. You should be certain to make your request with ample time to receive the check and deliver it to the charity.

Vanguard and other IRA administrators typically have a minimum amount that you can transfer to each charity. There are generally no limits on the number of charities you can support each year. However, note that you can’t transfer more than $100,000 tax-free from your IRAs in any one year.

08/31/2017

“A pet can't inherit property, but you can arrange for care after your death.”

You want to plan for the care of your pets, in the event you pass before they do. Many people wonder if they can leave an entire estate to a pet and what happens after the family pet is deceased.

The answer is no. You can't leave an estate directly to your pet. NJ.com’s recent article, “Can you leave an estate to a pet?”, explains that animals can’t own property. Your cat doesn’t have the necessary legal capacity. However, your estate or part of an estate can be left for the benefit of a pet. There are two options.

Pet Trust. This is a trust document that establishes the purpose of the trust, who it will benefit and how the assets held in the trust are to be administered for the beneficiary. Think of Leona Helmsley. She was a hotel heiress who left $12 million to her dog. Technically, she left the money in trust and a trustee managed the funds for the life of her Maltese.

The trust should also state who receives any money left in the trust, when the pet dies. That’s known as a remainder beneficiary. From a legal standpoint, animals are considered property, even though pet lovers consider them furry friends or family members. You need to name someone to take ownership and care for your pet.

You can also forego a trust and simply leave your pet and a sum of money to care for the pet to a designated person without a trust. But there’s no guarantee that after you die, the person you selected won’t just pocket the money and give the pet away. There’s less structure and certainty in this, but it’s a less expensive option to set up.

Animal Charities. There are organizations that care for animals when their owners die. You can donate to the organization and leave your pet to them. They will do the rest. You can add these instructions to your will. However, be sure to research the organization and the housing arrangements before choosing this option. You want to be totally comfortable with the group that will care for your pet after you’re gone.